Lagarde said the direction of rate cuts is clear, but the pace is uncertain, responding to Trump's tariffs and Fed's remote rebuttal

European Central Bank President Lagarde stated that the ECB has decided to cut interest rates to address rapidly declining inflation and uncertainty in the Eurozone economy. Although the specific rate cut amount and speed have not been determined yet, Lagarde did not rule out the possibility of a larger rate cut.

On Tuesday, October 22nd, Eastern Time, during the annual meetings of the International Monetary Fund and the World Bank, Lagarde, in an interview with Bloomberg TV, expressed "relative confidence" in the recent price declines and believed that the policy direction they have taken since June is wise and should continue to proceed cautiously. She emphasized that the ECB will decide on the specific rate cut based on actual conditions and certain criteria, while closely monitoring economic data. They will continue to be cautious and not jump to conclusions too quickly.

Due to the decrease in energy costs, the inflation rate in the Eurozone fell below 2% for the first time since 2021 in September. However, concerns in the market remain due to high wage growth and the elevated operation of service prices. Lagarde cautioned that despite her optimism, vigilance is still needed for a potential temporary rise in inflation in the coming months. Lagarde said:

"We are all confident that by 2025 we will be able to steadily reach our target, but we also need to pay attention to various situations. Currently, energy prices are relatively low compared to possible prices, and although service prices have slightly decreased, there is still an overall inflation of 3.9%, so we still need to pay attention to domestic inflation."

Lagarde Counters Trump on Tariffs and the Fed Issue

Lagarde also spoke out on two issues that Trump often criticizes: monetary policy makers and global trade.

Last week, Trump mocked the work of the Federal Reserve in an interview with Bloomberg News Editor-in-Chief, saying:

"I think it's the best job in government. You just need to go to the office once a month and say, 'Let's flip a coin to decide,' and people think you're like God."

On Tuesday, Lagarde, chatting with Bloomberg TV's Francine Lacqua in Washington, said that Trump's belief that setting interest rates is simple is incorrect. He should come to Frankfurt to see how difficult the work of Fed Chairman Powell, whom he often criticizes, is. Monetary policy makers are easily criticized by politicians. She said:

"I have thousands of hardworking people here, economists, legal experts, computer scientists, who work very hard every day, not just once a month."

Furthermore, Lagarde also raised objections to Trump's favorite issue of tariffs. She said:

"Fair trade is a key factor in promoting growth, employment, innovation, and productivity. What I want to say is that we should not give up on this, because prosperity comes during trade periods, not during times of 'I want to retreat to my own territory and be self-sufficient'."

French Central Bank Governor: Inflation Could Reach 2% Early Next Year

Lagarde's comments came after the IMF's latest forecasts. Due to weak industrial performance in Germany and Italy, the IMF has lowered its growth forecasts for the Eurozone for this year and next year. The Eurozone economy is struggling, especially with Germany possibly facing a second consecutive year of economic contraction Due to a faster-than-expected decline in inflation and increasing concerns about the economic health of the 20 countries in the Eurozone, the European Central Bank has accelerated its pace of interest rate cuts. Although officials have not explicitly stated how fast or by how much they will cut rates, investors speculate that rates will be cut by 0.25 percentage points at each of the next four meetings, and will be reduced to 2% by mid-2025.

This speculation in the market is based on signs that inflation may reach the 2% target earlier than previously thought. The Governor of the Bank of France, Francois Villeroy de Galhau, even suggested that this 2% target could be reached as early as the beginning of next year.

Furthermore, Robert Holzmann, a member of the ECB's Governing Council and one of the most hawkish officials, also mentioned that if prices fall faster than expected, the ECB may cut rates again soon. The Governor of the Bank of Portugal, Mario Centeno, stated that if economic data supports it, officials will be prepared to further loosen monetary policy. Traders are also increasing their bets on rate cuts, with current bets indicating a 32 basis point cut in December and a 58 basis point cut in January, compared to previous bets of a 30 basis point cut in December and a 56 basis point cut in January.

European policymakers also need to consider the potential economic consequences if Trump is re-elected as U.S. President, while also keeping an eye on the Federal Reserve's loose monetary policy. In addition, Lagarde pointed out that although there are expectations for growth in European consumer spending, the realization may take longer than expected, and European consumers generally have a lower propensity to spend compared to American consumers